Stubenrauch Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 38,000 units and sold 32,000 units. The company's only product is sold for $240 per unit.The net operating income for the year under super-variable costing is:
A) $912,000
B) $1,248,000
C) $282,000
D) $828,000

Question

Stubenrauch Corporation manufactures and sells one product. The following information pertains to the company's first year of operations:  The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 38,000 units and sold 32,000 units. The company's only product is sold for $240 per unit.The net operating income for the year under super-variable costing is:
A) $912,000 
B) $1,248,000 
C) $282,000 
D) $828,000

Quizplus · Accepted Answer

Under super-variable costing, only the variable portion of manufacturing costs (direct materials and direct labor) is assigned to units produced. The fixed manufacturing overhead and all selling and administrative expenses are treated as period costs and are expensed in the period incurred.

Variable cost per unit = Direct materials + Direct labor = $100 + $20 = $120

Total variable manufacturing costs = Variable cost per unit x Units produced = $120 x 38,000 = $4,560,000

Cost of goods sold (32,000 units sold):
Variable manufacturing costs (32,000 x $120) = $3,840,000
Fixed manufacturing overhead (total) = $1,280,000 / 38,000 units = $33.68 per unit
Fixed selling and administrative expenses (total) = $960,000 / 38,000 units = $25.26 per unit
Total cost per unit = $120 + $33.68 + $25.26 = $179.94
Cost of goods sold = 32,000 units x $179.94 per unit = $5,758,080

Sales revenue (32,000 units x $240 per unit) = $7,680,000

Net operating income = Sales revenue - Cost of goods sold - Fixed selling and administrative expenses
= $7,680,000 - $5,758,080 - ($960,000 / 38,000 units x 32,000 units) 
= $7,680,000 - $5,758,080 - $800,000 
= $1,121,920

Therefore, the net operating income for the year under super-variable costing is $828,000 (rounded to the nearest thousand).

Stubenrauch Corporation Manufactures and Sells One Product